Rob Taylor broke the news that Indian conglomerate Adani Enterprises has hired U.S. bank Morgan Stanley to sell part of its stake in the Abbot Point coal port, located near the World Heritage-listed Great Barrier Reef in eastern Australia.

CANBERRA, Australia–Indian conglomerate Adani Enterprises Ltd. has hired U.S. bank Morgan Stanley to sell part of its stake in the controversial Abbot Point coal port in eastern Australia, even as the bank has expressed concerns about the environmental impact of the port’s proposed expansion.

Adani plans to build a new terminal at Abbot Point to handle coal from its proposed Carmichael coal project, potentially one of the world’s biggest new coal mines. An expansion of the port, however, would likely lead to more ships navigating the sea lanes near the World Heritage-listed Great Barrier Reef at a time when the United Nations and green groups have warned about the long-term health of the reef.

Adani disclosed Morgan Stanley’s role after the bank sent a letter dated Oct. 20 to U.S.-based environmental group Rainforest Action Network saying it doesn’t knowingly finance extractive activities in World Heritage sites. “Morgan Stanley will not lend to or invest in the expansion of Abbot Point,” it said. The letter was viewed by The Wall Street Journal.

Adani said in a statement to the Journal that funds raised from the sale of the existing terminal would be used to finance the expansion.

“Morgan Stanley Australia are Adani’s advisors on the potential partial sale of Adani’s existing terminal (T1) at Abbot Point,” Adani said. “Any partial sale of Adani’s current holdings at the port would–far from a withdrawal from the port–in fact be used to deliver the port’s expansion.”

Morgan Stanley declined to immediately comment.

The disclosure of Morgan Stanley’s involvement came as three other large U.S. banks distanced themselves from Abbot Point, joining a growing roster of international lenders expressing worries about the project’s potential environmental impact.

JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc. have signaled they wouldn’t support new investment at Abbot Point, Australia’s most northerly coal port, potentially complicating the search for funding by Adani and India’s GVK, who want to export coal from planned mines nearby.

The United Nations Educational, Scientific and Cultural Organization, or Unesco, has voiced concerns about the health of the World Heritage-listed reef, which would see a sharp increase in ships navigating its shallows to fetch coal for export to Asia. The reef–a 344,000-square-kilometer marine park and the only living organism visible from space–is already under threat from rising sea temperatures, water pollution and coastal development.

The possible expansion of Abbot Point has proved more contentious than other port projects in Australia. State and federal government leaders have broadly supported the expansion as they look to rekindle mining investment and boost the economy, even as the coal industry has been hit by price declines to multi-year lows. Coal is Australia’s second-largest export after iron ore, and much of it is shipped through ports on its eastern coast to Asia. Prime Minister Tony Abbott recently said “coal is good for humanity.”

Citi’s director of corporate sustainability, Valerie C. Smith, said in a letter to environmental activists that the bank was “not involved and does not plan to be involved in any financing for the Abbot Point expansion.” Internal Citi rules generally prevent finance for “new mining projects within the boundaries of a World Heritage Site,” she said. An Australia-based spokesman for Citi confirmed the letter.

In separate correspondence, Goldman Sachs and JPMorgan cited internal environmental risk principles when asked by environmental group Rainforest Action Network whether they would be prepared to help finance Abbot Point’s expansion.

An expanded Abbot Point, which is located near the town of Bowen and on the fringe of the Barrier Reef in tropical Queensland state, would handle as much as 60 million tons of coal from the Carmichael mine. It would also handle coal from a proposed mine by GVK and partner Hancock Prospecting, owned by Gina Rinehart, Australia’s richest person.

Josh Euler, speaking on behalf of GVK and Hancock, said the proposed expansion had been through a comprehensive environmental assessment overseen by state and national governments, and work to develop the terminal would “meet all obligations relating to responsible environmental and social management practices.”

Adani said the terminal was not in a World Heritage Area and the environmental approval was “among the most rigorous and stringent ever applied in Australia, the USA or the rest of the world.” No funding had even been sought from Citibank, Goldman Sachs, or JPMorgan Chase, it added.

Still, the banks’ letters add fuel to a burning debate in Australia over investment in major resource projects that opponents say run the risk of fuelling climate change by supplying coal-fired power stations and steel mills overseas, often in countries with weak emissions controls, such as China and India. The Australian National University, one of the country’s top colleges, triggered a political storm this month after divesting its investment portfolio of shares in several large energy and resource companies, citing climate change risks.

In May, Deutsche Bank AG said it wouldn’t offer funding for Abbot Point after Unesco condemned a government plan–since reversed–to allow mud and rock dredged from the sea floor during any expansion of the port to be dumped in waters near the reef. U.S. banks join a group that also includes HSBC, Barclays and Royal Bank of Scotland PLC in expressing an unwillingness to get involved if asked.

The Galilee Basin could see Australia surpass neighboring Indonesia as the world’s top coal exporter. Mr. Abbott, whose conservative government has been rolling back pro-environment regulation, said this month that coal would remain the world’s main energy source for decades when opening a new A$3.9 billion coal mining venture in the Bowen Basin, south of Abbot Point.

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